How to be prepared without being preoccupied
By Megan Pacheco
Hope is not a good retirement strategy. Unfortunately, for so many Americans, hope is the only thing they’ve got to hold on to as they face their retirement years.
According to the Employee Benefit Research Institute, 46% of all American workers have less than $10,000 saved for retirement and 29% of all American workers have less than $1,000 saved for retirement.
How can you look at these numbers and not be preoccupied or even paranoid?
Being in our mid 30’s and having two young children, my husband and I often talk about the future, and retirement is definitely on the forefront of our minds.
As we watch so many elderly men and women having to work indefinitely we wonder, what financial decisions can we make, starting “TODAY”, to help us be prepared for the “TOMORROW’s”?
Here are few practical ideas to get you on the road to more secure retirement days. These practical steps are meant to help you be proactive and better prepare yourself and your family for the years to come.
DEBT-FREE, including mortgage
Eliminate all of your consumer debt, as well as your mortgage. This will make it much easier for you to retire, even if your retirement years aren’t fully funded.
Here are few quick “to do’s” to help you ditch your consumer debt:
– Stop using plastic until you learn responsible use of credit. Anyone using credit cards should aim at paying each monthly balance in full so no interest accrues. There are free cash management tools available to help you do this, following an envelope budgeting system is a great way to help make sure you always have enough cash to pay the bill in full.
– Eliminate your car debt. Once you pay the car loan off, keep driving the car while making those car payments to yourself. This way, when it’s time to replace your vehicle you’ll have enough cash set aside to purchase one out right. Owning your car out right will also bring your insurance premium down – which is a small additional monthly bonus!
– Use the “debt snowball” approach to eliminating your consumer debt. Once you pay one card off, roll that money over to the next debt, which will greatly accelerate your payoff. Keep doing this until all of your debts are eliminated.
Now that we’ve dealt with your consumer debt, let’s help you pay that mortgage off!
– Did you know that adding $25 or $50 to your mortgage payment (make sure the extra funds are assigned to the PRINCIPAL) can shave off 2-4 years and save thousands of dollars worth in interest? Even if you can’t pay hundreds of dollars extra each month, every little bit will help in getting you closer to owning your home outright.
– Are you an empty nester or single? Consider renting out rooms, or a basement if you have one, to generate extra income. Apply that income to your mortgage payments and watch your loan melt away!
Are you thinking of reverse mortgage? If so, keep these few things in mind:
– It should be considered only out of necessity and not as a way to increase your standard of living.
– The younger you are, the higher relative cost you’ll pay for a reverse mortgage. Avoid taking out a reverse mortgage in your 60’s.
– Finally, beware of scams that charge thousands of dollars for information you
can get free from the Department of Housing and Urban Development (HUD).
Do the math
Do you know how much you’ll need to retire? Understanding your future financial needs can give you clarity on what you can start doing today.
– Project your retirement monthly budget. If you know you’ll be debt free, including your mortgage, how much do you think you’ll need to cover your monthly living expenses?
– Go on line and search for retirement calculators. Simply plug in few pieces of information and Voila! You’ll have your estimated retirement amount. Divide that amount by the years you have left in the working world and you should get your estimated yearly goal for setting money aside. Don’t be overwhelmed if the number seems larger than life! Use it as a motivator to simply do your best. Something is always better than nothing!
Know your options
There are few different options for setting retirement funds aside. 401K or 403b are your typical, before tax contributions, and will be taxed on the back end when you are ready to start drawing on your retirement funds. Roth IRA is also an option for those who prefer to contribute after tax money, to avoid paying taxes during the retirement years. Whichever option you choose, here are few ideas to help you start contributing:
– Check if your employer has a matching plan. If they do, consider contributing at least the percentage your employer offers. That way you’ll get double your money.
– Do you think you can’t afford to set aside few dollars a week for retirement? Think twice. Track your spending for 30-60 days and you’ll be surprised what you’ll find. Many of us spend money on lunches, coffee, and other entertainment categories. Simply limiting few of those expenses will free up some cash you can put toward retirement. Remember this proverb: “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.” Proverbs 21:20
– How about those tax returns? If you receive a refund each year, consider setting aside a portion of your refund for retirement.
Retirement, as we know it today, is a very recent phenomenon. Before 1900’s most people worked until they were physically unable to continue. Family also played a big role in taking care of the elderly or those unable to work due to health factors. There were no national programs, no employer sponsored plans. None.
So consider all of your options. Do what you can. There is really no magic solution. What it takes is knowing where you are today, where you need to be when you reach retirement age, and having a realistic, doable plan broken down into yearly and monthly goals. The rest is execution.